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Hospitals buoyed by ruling in Medicaid reimbursement suit

Monday, July 30, 2012

Hospitals buoyed by ruling in Medicaid reimbursement suit

By ALEX HANSON
Tuesday, March 6, 2012

DOVER — A federal judge has handed a partial victory to Dartmouth-Hitchcock Medical Center and nine other New Hampshire hospitals in their lawsuit against the state health commissioner over reductions in Medicaid reimbursements, finding a "strong case" that the state's cuts failed federal mandates to provide minimal medical care for its neediest citizens.

In a pair of sharply worded rulings on Friday, U.S. District Judge Steven J. McAuliffe ordered the state to properly notify the public and hold hearings about reimbursement rates that were dramatically lowered in 2008. The notice must be given within 15 days from Friday's ruling, to be followed by a 30-day comment period.

"The state violated federal law," said Scott O'Connell, vice chair of litigation department for Nixon Peabody LLC, the firm representing the 10 hospitals. "It's got to run a transparent process and follow federal law. They didn't do any of that, and instead tried to do it in a stealth way."

In his notification, Nicholas Toumpas, commissioner of the state Department of Health and Human Services, must articulate the rates the state will pay to hospitals, the precise methodologies used to set those rates and justifications for those rates, McAuliffe wrote in a preliminary injunction. Within 15 days of the end of the comment period, Toumpas must decide whether to employ the rates and must restate the methods and justifications.

But McAuliffe did not block the state from enforcing the reimbursement rates, saying that to do so would risk undercutting the commissioner's authority to set rates and the federal Health and Human Services secretary's authority to review and approve them.

Messages left for Toumpas on his home and mobile phones were not returned. A spokeswoman for DHHS did not return a message Friday night.

Calls to Nancy Smith of the N.H. Attorney General's Office were not returned Monday.

"We thought that it was a very positive ruling for our patients," said Frank McDougall, vice president of government affairs at Dartmouth-Hitchcock Medical Center. "I think the language in the decision is very strong language" saying that the state erred in how it set Medicaid reimbursement rates and informed the public about those rates.

The state cut reimbursement rates in 2008 to keep the state's Medicaid obligation in line with the state budget. The 10 hospitals filed suit last summer, asserting they would provide $131 million in uncompensated care and pay another $135 million in a state Medicaid enhancement tax used to leverage more federal funding. Several of the state's largest hospitals, including DHMC, said those measures were to blame for increasing costs and forcing layoffs of workers last year.

Hospitals which participated in the suit include Dartmouth-Hitchcock Medical Center, Elliot Hospital in Manchester, Catholic Medical Center in Manchester, Lakes Region General Hospital in Laconia, Southern New Hampshire Medical Center in Nashua, St. Joseph Hospital in Nashua, Cheshire Medical Center in Keene, Wentworth-Douglass Hospital in Dover, Frisbie Memorial Hospital in Rochester and Exeter Hospital.

In addition to ordering the state to follow the federal notification and comment protocols, McAuliffe put the state on notice that its methods for setting its rates were flawed and are unlikely to pass muster with federal regulators who manage Medicaid the federal-state program that provides health care for the poorest citizens.

"Substantively, the providers and beneficiaries make a strong case that the reduced Medicaid reimbursement rates implemented by the Commissioner are far below the actual cost of providing care, inconsistent with the state's legal obligation to set Medicaid rates at a level that at least minimally supports their ability to deliver medical care to the most needy, and the product of a rate-setting process completely untethered from the methods and standards the State is obligated to apply in setting rates," McAuliffe wrote in his 31-page order.

In their lawsuit, the hospitals contended the state's Medicaid reimbursements didn't satisfy federal requirements to provide sufficiently for patient care, an issue McAuliffe addressed, but did not act upon.

"As is likely self-evident, arbitrary reductions in Medicaid reimbursement rates, implemented solely to accommodate state budgetary preferences, necessarily collapse multiple rate-setting factors into just one state prerogative," McAuliffe wrote. "It is equally self-evident that if rate-setting based strictly on state prerogative were permissible under (federal law), then the purpose and objectives of the federal-state program could be completely undermined by participating states, in direct contravention of Congressional intent."

McAuliffe noted that "courts have rejected Medicaid rates set solely on the basis of state budget considerations."

In their lawsuit, the hospitals argued that federal requirements trumped state law under the Constitution's Supremacy Clause. The U.S. Supreme Court declined to address this issue in a decision last month about a similar Medicaid case in California, and McAuliffe took note, writing that "a critical legal question remains unanswered."

But the hospitals have another remedy available to them, one they are already pursuing. There has thus far been no review of the state's Medicaid rates by the federal Health and Human Services secretary.

"We would welcome that, very much so," McDougall said.

He and James Weinstein, DHMC's chief executive, were in Washington to meet with federal officials earlier this year.

"There haven't been any state plan amendments filed" for federal review, McDougall said.

In a further attempt to resolve the Supremacy Clause questions and to determine whether the federal administrative process is working, McAuliffe ordered lawyers on both sides to submit new arguments on those points within the next 45 days.

Foster's Daily Democrat Reporter Laurenne Ramsdell contributed to this report.

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